While economists and others debate whether the economic recovery following the current recession will be V-, U- or L-shaped, another letter-shaped forecast has emerged: the W-shaped recovery.
Mark Zandi, the chief economist of Moody’s Analytics, says a W-shaped rebound is the most likely scenario if a COVID-19 vaccine is available by summer 2021.
This forecast envisions a continued “deep slide in the economy … a bounce when businesses begin to reopen and then a modest slump as consumers and businesses remain cautious until a vaccine becomes available.”
The renewed slump could also follow a resurgence of the virus’ spread, causing more businesses to delay reopening or closing down again.
The Conference Board, too, entertains the possibility of a W-shaped recovery, but like most business economists and business trade groups, its “base case” is a U-shaped rebound. Such a recovery is more gradual than a V-shaped rebound, which was the dominant forecast initially but has since been abandoned by many economists.
It forecasts a 5.8% real decline in GDP in the first quarter on an annualized basis followed by 33% annualized contraction in second quarter, no growth in the third quarter and “a sizable rebound in the economy” in the fourth quarter — all adding up to a 6.5% decline in real GDP for the year.
In a W-shaped recovery, Zandi says, “the rebound will take time — until mid-2023 in our outlook — to get back to full employment.” He defines full employment as a 4.5% unemployment rate.
Zandi expects an unemployment rate near 15% in May. That compares to a 10% jobless rate at the peak during the financial crisis. (The March unemployment rate, announced Friday, was 4.4%, up from 3.5% in February.)